Thomas Franck, Silvia Amaro
Long-term U.S. government debt yields climbed again on Friday, capping a week of gains, as warmer trade relations between Washington and Beijing buoyed equities and pressure bonds.
The yield on the benchmark 10-year Treasury note hit 1.945%, while the yield on the 30-year Treasury bond was 2.427%. Friday’s calmer markets followed one of the biggest moves in the 10-year Treasury yield in recent years.
At its highs on Thursday, the 10-year yield jumped 15 basis points to 1.96%, its biggest jump since the 20-basis-point move the day after President Donald Trump was elected in 2016. The move brought the yield to its highest level since August.
The yield curve, which inverted over the summer and stoked recession fears, also steepened to the widest since January on Thursday. The spread between the 10-year yield and the 2-year yield was last seen at 26 basis points; the 10-year/3-month spread was at 38 basis points.
The week’s upward move in long-term rates tracked improved market sentiment over U.S.-China trade relations, better-than-expected corporate profits and a marginally better economic outlook.
Market players are following U.S.-China trade discussions after a spokesperson for the Chinese commerce ministry said Thursday that both sides had agreed to cancel existing tariffs in phases. Both countries have had tense trade discussions since 2018.
Meanwhile, Jean-Claude Juncker, president of the European Commission, said there “won’t be any auto tariffs” from the U.S. on Europe next week. President Trump has until November 13 to decide whether he will pursue with car tariffs on the EU.
“The Treasury market is trading slightly lower this morning after yesterday’s complete blowout in rates due to the
expectation of not only a U.S.-China trade deal, but a robust one as well,” wrote Kevin Giddis, head of fixed income capital markets at Raymond James.
“As far as the bond market is concerned, it just needs to ride out the move out of a risk-off trade into a risk-on trade, which takes a whole lot of money out of bonds and puts it squarely into the equity market,” he added. “I am not saying that it’s a bad thing for that to happen, I just believe that the move is premature, and it disregards a big chunk of the fundamentals.”
|US 3-MO||U.S. 3 Month Treasury||1.556||-0.003||0.00|
|US 1-YR||U.S. 1 Year Treasury||1.587||0.00||0.00|
|US 2-YR||U.S. 2 Year Treasury||1.68||0.003||0.00|
|US 5-YR||U.S. 5 Year Treasury||1.751||0.012||0.00|
|US 10-YR||U.S. 10 Year Treasury||1.945||0.023||0.00|
|US 30-YR||U.S. 30 Year Treasury||2.427||0.027||0.00|